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Broker Round-up Part 1: Tullow Oil, Vodafone, Persimmon, African Minerals and SSE

Last updated: 14:35 08 May 2012 BST, First published: 18:35 08 May 2012 BST

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After another positive update from global oil and gas explorer Tullow Oil (LON:TLW) on its Ngamia-1 well in Kenya, there have been target price upgrades from a number of key brokers, including Credit Suisse, Societe Generale, and Barclays Capital.

Credit Suisse has upgraded its target price to 1,841 pence from 1,818 pence following the news that the well has now deepened to 1,515m and a total pay exceeding 100m has been discovered.

The Swiss broker retained its ‘outperform’ stance and also welcomed the company’s intention to accelerate drilling activity in the region.

Network provider Vodafone (LON:VOD) still has space to grow into, according to broker Morgan Stanley, despite the fact that returns in its largest business, Europe, are very high and are likely to fall in the long-term.

The broker reckons if it is to re-rate further, the company must realise the value in its 45 per cent-owned US business, Verizon Wireless.

Vodafone’s payout is quite high (>85%), but is sustainable given low leverage, in our view,” said Morgan Stanley analyst Nick Delfas.

“We think growth from the US and building a better European business is possible and that this will drive a re-rating towards non-European peers.”

As a result, the broker retains an ‘overweight’ stance with a target price of 210 pence against the current price of 174 pence.

Shares in home builder Persimmon (LON:PSN) should appeal to “value hunters and income seekers alike”, according to a leading broker.

Panmure Gordon analysts see Persimmon as a “quality business, which has emerged from the downturn in a strong position”, upgrading the company to ‘buy’ from ‘hold’.

Following strong interim results announced last month, the share price has dipped 16 per cent and the broker believes this decline looks “overdone”.

It admits however that despite management’s programme to return 75 pence of capital by 2013 and 620 pence by 2021, market conditions – which have been favourable so far this year – could change.

The broker’s target price of 670 pence represents a significant premium to the current price of 590 pence.

Goldman Sachs reckons African Minerals’ (LON:AMI) recent share price fall has created a window of opportunity for investors.

The broker is upgrading its recommendation to ‘buy’ from ‘neutral’, while the target price is reduced to 750 pence from 800 pence, which still implies potential upside of 59 per cent to the current price of 435 pence.

Despite the underperformance since the announcement of CEO Alan Watling’s retirement, the current valuation “prices in a significantly worse scenario than our risk-adjusted base case, which we believe creates a potential buying opportunity”, said the broker.

City firm Berenberg has increased its target price for Scottish electric utility firm SSE (LON:SSE) by 50 pence to 1,450 pence as it believes the company will benefit from rising power prices through its wind projects in the next couple of years.

The broker said: “We believe SSE is the most sensitive to changes in UK power assumptions and will be able to benefit from the expected market tightening and rise in power prices given its diversified fleet and renewables growth.”

The broker claims however that these projects will require heavy investment and therefore remain capital intensive.

Berenberg retains its ‘hold’ rating as a result, while the share price rose nearly 20 pence today to stand at 1,344 pence.

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